India benchmark shares log worst month since March as oil, global rate hikes spark outflows

Indian equity benchmarks logged their steepest monthly drop since March, while the rupee and the benchmark bond lost ground, as foreign investors fled risky assets after soaring oil prices kept inflation worries centre stage and global central banks hiked interest rates.

The US Federal Reserve raised its key interest rate in September, along with central banks in Australia, Europe and Japan. Higher US rates are negative for emerging market stocks as they typically make bonds and the dollar more attractive investment bets.

Foreign investors offloaded Indian shares worth $2.7 billion in September, taking their year-to-date outflows to $26.8 billion.

“Global macro backdrop remained weak in September, with tensions in the Middle East and US Fed rate hike, while a busy local IPO market meant limited liquidity support for the falling market,” said Sunny Agrawal, head of fundamental equity research at SBICAPS Securities.

The Nifty 50 retreated 6.1% during the month to 22,620.45, and the BSE Sensex declined 5.8% to 72,480.29. September is also the benchmarks’ second straight monthly fall.

Analysts expect limited downside risk for benchmarks after the recent losses, but said any recovery will be capped by persistent Middle East risks and will hinge on earnings recovery.

On Wednesday, the Nifty 50 and Sensex were marginally down by 0.42% and 0.07%, respectively.

The Indian rupee was also among Asia’s worst-performing currencies in September and this quarter, down 0.7% and 1.2%, respectively. The benchmark 10-year bond fell for third straight month in September as bets of rate hikes from the RBI strengthened.

The small-caps and mid-caps shed 3.4% and 7.6%, respectively, in September.

All 16 major sectors declined, led by a 11.2% fall in the IT sector, which earns a large slice of its revenue from the US. Higher US rates curb client spending for IT firms.

Regulatory developments over the month also adversely impacted several sectors such as financial services, capital markets and payments companies, according to Agarwal.

Heavyweight financials lost 6.3% in September, as insurance regulator’s proposed caps on distribution commission added to broader market weakness.

Bajaj Finserv, Cholamandalam Investment and Max Financial Services fell 14.4%, 12.8% and 12.7%, respectively, topping percentage losers among financials.

Indexes tracking banks, private banks and state-owned banks also lost between 4.7% and 6.9%.

Auto stocks fell 8.8%, snapping a five-month winning streak. Some analysts expect sales growth to moderate in coming months.

Tata Group stocks were in focus, with Tata Investment Corp, Tata Chemicals and Tata Motors Passenger Vehicle dropping 3.5%, 4.9% and 8.2%, respectively, as investor focus stayed on Tata Sons’ listing.

Bucking trend, Coal India jumped 5.8% during the month on upbeat demand and earnings outlook.

Heaviest-weighted HDFC Bank ended little changed in September, pausing after a more than 11% slide in the last two months, as investors await the CEO’s appointment.